Académique Documents
Professionnel Documents
Culture Documents
4
-‐
Leases
PROBLEMS
4-‐1.
(a)
Lessor’s
Books
(Hope
Manufacturing
Co.)
2015
Jan.
1
Machinery
for
lease
2,200,000
Cash
2,200,000
1
Cash
600,000
Rent
revenue
400,000
Unearned
rent
revenue
200,000
2
M/5
=
400,000
2
M
x
30%
=
600,000
1
Machinery
for
lease
60,000
Cash
60,000
Dec.
31
Depreciation
expense
212,000
Accumulated
depreciation
200,000
Machinery
for
lease
12,000
(2.2
M
–
200,000)/10
200,000
60,000
/
5
years
12,000
Total
212,000
2016
Jan.
1
Cash
400,000
Rent
revenue
400,000
2,000,000
x
20%
Dec.
31
Depreciation
expense
212,000
Accumulated
depreciation
200,000
Machinery
for
lease
12,000
Lessee’s
Books
(Charity
Co.)
2015
Jan.
1
Rent
expense
400,000
Prepaid
rent
200,000
Cash
600,000
2016
Jan.
1
Rent
expense
400,000
Cash
400,00
(b)
Statement
of
Comprehensive
Income:
Hope
Charity
(In
profit
or
loss
section)
Rent
revenue
400,000
Depreciation
expense
212,000
Rent
expense
400,000
Statement
of
Financial
Position
Machinery
for
lease,
net
of
accum.
depreciation
2,048,000
Unearned
rent
revenue
200,000
Prepaid
rent
200,000
Chapter
4
–
Leases
4-‐2.
a.
Rentals
for
2015
and
2016
(360,000
x
4)
P1,440,000
Rentals
for
2017
(432,000
x
2)
864,000
Total
rentals
for
three
years
P2,304,000
Rent
expense
per
year
(2,304,000/3
years)
P768,000
Rent
Expense
for
2015
(768,000
x
8/12)
P512,000
b.
Cumulative
rent
revenue
for
2015
and
2016
2015
P512,000
2016
768,000
P1,280,000
Cumulative
collections
(360,000
x
4)
1,440,000
Unearned
rent,
December
31,
2016
P
160,000
Rent
Receivable,
December
31,
2016
P
-‐0-‐
4-‐3.
a.
Monthly
rental
payment
10,000
No.
of
payments
(60-‐6
mos
free)
x
54
Total
payments
540,000
Rent
expense
for
2015
(540,000
x
4/60)
36,000
or
Monthly
rental
10,000
Less
lease
bonus
(60,000/60
mos)
(1,000)
Rent
expense
per
month
9,000
Rent
expense
for
2015
(9,000
x
4)
36,000
Rent
expense
for
2016
(9,000
x
12)
108,000
(b)
Faith
Company
2015
Dec.
31
Rent
expense
36,000
Rent
payable
36,000
9,000
x
4
=
36,000
2016
Mar.
1
-‐
Monthly
entry
Dec.
1
Rent
expense
10,000
Cash
10,000
Dec.
31
Rent
expense
8,000
Rent
payable
8,000
Rent
expense
for
2016:
540,000
x
12/60
108,000
Payments
in
2016
100,000
Increase
in
rent
payable
8,000
Love
Corporation
2015
Dec.
31
Rent
receivable
36,000
Rent
revenue
36,000
Page
51
Chapter
4
–
Leases
2014
Mar.
1
-‐
Monthly
entry
Dec.
1
Cash
10,000
Rent
revenue
10,000
Dec.
31
Rent
receivable
8,000
Rent
revenue
8,000
Year-‐end
adjusting
entry
4-‐4.
a.
Fixed
annual
rental
960,000
Additional
rent
5%
x
(6M-‐5M)
50,000
Amortization
of
lease
bonus
(125,000/5
years)
25,000
Rent
expense
for
2015
1,035,000
b.
Prepaid
rent
expense
(125,000
–
25,000)
100,000
Security
deposit,
January
1,
2015
(150,000
x
0.62092)
P93,138
Add
amortization
for
2015
(10%
x
93,138)
9,314
Security
deposit,
December
31,
2015
P102,452
4-‐5.
a.
Rent
revenue
(960,000
x
9/12)
720,000
Depreciation
expense
3,500,000/6
=
583,333;
583,333
x
9/12
(437,500)
Maintenance
and
other
related
costs
(50,000)
Income
before
income
tax
for
year
2015
232,500
b.
Rent
expense
for
2015(960,000
x
9/12)
720,000
4-‐6.
Lessor’s
Books
2015
July
1
Equipment
for
lease
1,500,000
Cash
1,500,000
Oct.
1
Cash
54,000
Rent
revenue
54,000
1
Cash
30,000
Rent
revenue
30,000
Nov.
1
Cash
30,000
Rent
revenue
30,000
Dec.
1
Cash
30,000
Rent
revenue
30,000
31
Rent
revenue
49,500
Unearned
rent
revenue
49,500
54,000
x
33/36
=
49,500
31
Depreciation
expense
75,000
Accumulated
depreciation
75,000
(1,500,000
/
10)
x
6/12
Page
52
Chapter
4
–
Leases
Lessee’s
Books
2015
Oct.
1
Rent
expense
54,000
Cash
54,000
1
Rent
expense
30,000
Cash
30,000
Nov.
1
Rent
expense
30,000
Cash
30,000
Dec.
1
Rent
expense
30,000
Cash
30,000
31
Prepaid
rent
49,500
Rent
expense
49,500
4-‐7.
Present
value
of
annual
payments
(260,000
x
4.2397)
1,102,322
Present
value
of
guaranteed
residual
value
(200,000
x
0.6499)
129,980
Total
capitalized
cost
1,232,302
(a)
Amortization
Table
Total
Annual
Reduction
in
Date
Payment
Interest
Expense
Principal
Lease
Obligation
01/01/15
-‐
-‐
1,232,302
01/01/15
260,000
-‐
260,000
972,302
01/01/16
260,000
87,507
172,493
799,809
01/01/17
260,000
71,983
188,017
611,792
01/01/18
260,000
55,061
204,939
406,853
01/01/19
260,000
36,617
223,383
183,470
12/31/19
200,000
16,530*
183,470
-‐
*Adjusted;
difference
is
due
to
rounding
off.
(b)
2015
Jan.
1
Leased
automobile
1,232,302
Finance
lease
obligation
1,232,302
1
Finance
lease
obligation
260,000
Cash
260,000
Dec.
31
Interest
expense
87,507
Interest
Payable
87,507
31
Depreciation
expense
206,460
Accumulated
depreciation
206,460
(1,232,302-‐200,000)/5
2016
Jan.
1
Finance
lease
obligation
172,493
Interest
payable
87,507
Cash
260,000
Dec.
31
Interest
expense
71,983
Interest
payable
71,983
31
Depreciation
expense
206,460
Accumulated
depreciation
206,460
Page
53
Chapter
4
–
Leases
(c)
Dec.
31
Accumulated
depreciation
(206,460
x
5
years)
1,032,300
Interest
expense
16,532*
Finance
lease
obligation
183,470
Leased
automobile
1,232,302
*adjusted;
balancing
figure
(d)
Dec.
31
Loss
on
finance
lease
50,000
Accumulated
depreciation
1,032,300
Interest
expense
16,532
Finance
lease
obligation
183,470
Leased
automobile
1,232,302
Cash
50,000
4-‐8.
(a)
Capitalized
cost
of
the
leased
asset
(86,680
x
4.1699)
P361,447
(b)
Amortization
Table
Total
Annual
Reduction
in
Date
Payment
Interest
Expense
Principal
Lease
Obligation
01/01/15
-‐
-‐
361,447
01/01/15
86,680
-‐
86,680
274,767
01/01/16
86,680
27,477
59,203
215,564
01/01/17
86,680
21,556
65,124
150,440
01/01/18
86,680
15,044
71,636
78,804
01/01/19
86,680
7,876*
78,804
-‐
*Adjusted;
difference
is
due
to
rounding
off.
(c)
2015
Jan.
1
Leased
machine
361,447
Finance
lease
obligation
361,447
1
Finance
Lease
Obligation
86,680
Cash
86,680
Dec.
31
Interest
expense
27,477
Interest
payable
27,477
31
Depreciation
expense
72,289
Accumulated
depreciation
72,289
361,447/5
years
2016
Jan.
1
Finance
lease
obligation
59,203
Interest
payable
27,477
Cash
86,680
Dec.
31
Interest
expense
21,556
Interest
payable
21,556
31
Depreciation
expense
72,289
Accumulated
depreciation
72,289
Page
54
Chapter
4
–
Leases
(d)
Statement
of
Financial
Position
2015
2016
Property,
plant
and
equipment
Leased
machine
361,447
361,447
Accumulated
depreciation
72,289
144,578
Current
liabilities
Interest
payable
27,477
21,556
Finance
lease
obligation
59,203
65,124
Noncurrent
liabilities
Finance
lease
obligation
215,564
150,440
Income
Statement
Interest
expense
27,477
21,556
Depreciation
expense
72,289
72,289
4-‐9.
(a)
Lessor’s
implicit
interest
rate
1,011,840/135,000
=
7.4951
PV
of
an
annuity
due
for
12
periods
From
Table
VI
across
12
periods,
7.4951
is
under
10%
interest
rate.
(b)
Total
Annual
Reduction
in
Date
Payment
Interest
Expense
Principal
Lease
Obligation
12/31/14
-‐
-‐
1,011,840
12/31/14
135,000
-‐
135,000
876,840
12/31/15
135,000
87,684
47,316
829,524
12/31/16
135,000
82,952
52,048
777,476
(c)
Depreciation
expense
for
2016
(1,011,840
–
40,000)
/
15
years
P64,789
(d)
12/31/15
Leased
equipment
1,011,840
Finance
lease
obligation
1,011,840
Finance
lease
obligation
135,000
Cash
135,000
12/31/16
Finance
lease
obligation
47,316
Interest
expense
87,684
Cash
135,000
Depreciation
expense
64,789
Accumulated
depreciation
64,789
(1,011,840
–
40,000)
/
15
(e)
Lease
obligation
as
of
December
31,
2015:
Current
portion
P
47,316
Noncurrent
portion
829,524
4-‐10.
(a)
Present
value
of
annual
payments
(150,000
x
4.0373)
P605,595
Present
value
of
bargain
purchase
option
(240,000
x
0.5674)
136,176
Total
capitalized
cost
of
the
asset
P741,771
Page
55
Chapter
4
–
Leases
(b)
Total
Annual
Reduction
in
Date
Payment
Interest
Expense
Principal
Lease
Obligation
01/01/15
-‐
-‐
741,771
01/01/15
150,000
-‐
150,000
591,771
01/01/16
150,000
71,013
78,987
512,784
01/01/17
150,000
61,534
88,466
424,318
01/01/18
150,000
50,918
99,082
325,236
01/01/19
150,000
39,028
110,972
214,264
12/31/19
240,000
25,736*
214,264
-‐
*Adjusted;
difference
is
due
to
rounding
off.
Page
56
Chapter
4
–
Leases
4-‐11.
(a)
Present
value
of
minimum
lease
payments
700,000
x
6.3282
P4,429,740
(b)
Annual
depreciation
(4,429,740/10)
P
442,974
(c)
2015
July
1
Building
4,429,740
Finance
lease
obligation
4,429,740
1
Taxes
and
insurance
expense
50,000
Finance
lease
obligation
700,000
Cash
750,000
Dec.
31
Interest
expense
223,784
Interest
payable
223,784
447,569
x
6/12
(see
table
below)
31
Depreciation
expense-‐Building
221,487
Accum.
Depreciation-‐Building
221,487
4,429,740/10
=
442,974;
442,974
x
½
31
Prepaid
taxes
and
insurance
25,000
Taxes
and
insurance
expense
25,000
2016
July
1
Taxes
and
insurance
expense
50,000
Interest
payable
223,784
Interest
expense
223,785
Finance
lease
obligation
252,431
Cash
750,000
Dec.
31
Interest
expense
208,639
Interest
payable
208,639
417,277
x
6/12
(see
table
below)
31
Depreciation
expense
442,974
Accum.
Depreciation-‐building
442,974
Amortization
Table
Periodic
Applied
to
Balance
of
Date
Payment
Interest
Principal
Principal
July
1,
2015
P4,429,740
July
1,
2015
P700,000
-‐
P700,000
3,729,740
July
1,
2016
700,000
P447,569
252,431
3,477,309
July
1,
2017
700,000
417,277
282,723
3,194,586
Page
57
Chapter
4
–
Leases
4-‐12.
a.
2015
Aug.
1
Finance
lease
receivable
605,000
Equipment
for
lease
480,000
Unearned
interest
revenue
125,000
1
Unearned
interest
revenue
1,900
Cash
1,900
1
Cash
100,000
Finance
lease
receivable
100,000
Dec.
31
Unearned
interest
revenue
15,912
Interest
revenue
15,912
38,190
x
5/12
(see
table)
2016
Aug.
1
Cash
100,000
Unearned
interest
revenue
22,278
Finance
lease
receivable
100,000
Interest
revenue
22,278
38,190
x
7/12
=
22,278
(see
table)
Dec.
31
Unearned
interest
revenue
13,337
Interest
revenue
13,337
32,009
x
5/12
(see
table)
Partial
Amortization
Table
Periodic
Reduction
in
Balance
of
Date
Payment
Interest
Principal
Principal
08/01/15
-‐
-‐
481,900
08/01/15
100,000
-‐
100,000
381,900
08/01/16
100,000
38,190
61,810
320,090
08/01/17
100,000
32,009
67,991
252,099
(b)
As
of
December
31,
2015:
Total
Current
Non-‐current
Finance
lease
receivable
P505,000
P100,000
P405,000
Unearned
interest
revenue
107,188
22,278
84,910
P397,812
P
77,722
P320,090
Current
portion:
Principal
due
in
2016
P
61,810
Accrued
interest,
12/31/15
(38,190
x
5/12)
15,912
Total
P
77,722
4-‐13.
Annual
Lease
Payment:
Fair
value
of
asset
P600,000
PV
of
BPO
=
40,000
x
.6209
24,836
PV
of
periodic
payment
P575,164
PV
factor
(Annuity
due
for
5
years
at
10%)
÷4.1699
Periodic
payment
P137,932
Page
58
Chapter
4
–
Leases
Page
59
Chapter
4
–
Leases
4-‐14.
(a)
This
is
a
direct
finance
lease.
The
cash
price
of
the
asset
is
the
same
as
its
carrying
value;
hence,
there
is
no
gross
profit).
(b)
The
rate
is
approximately
8%.
The
PV
factor
is
P539,730/80,000
=
6.7466;
in
line
9
(which
is
8
annual
payments
of
P80,000
+
1
payment
for
guaranteed
residual
value
of
same
amount),
the
corresponding
interest
rate
is
8%.
(c)
Partial
amortization
table
Periodic
Reduction
in
Balance
of
Date
Payment
Interest
Principal
Principal
April
1,
2015
P539,730
April
1,
2015
80,000
80,000
459,730
April
1,
2016
80,000
36,778
43,222
416,508
April
1,
2017
80,000
33,321
46,679
369,829
Books
of
Ironman
2015
Apr.
1
Equipment
539,730
Finance
lease
obligation
539,730
1
Finance
lease
obligation
80,000
Cash
80,000
Dec.
31
Interest
expense
27,584
Interest
payable
27,584
36,778
x
9/12
(see
table)
2016
Apr.
1
Interest
expense
(36,778-‐27,584)
9,194
Interest
payable
27,584
Finance
lease
obligation
43,222
Cash
80,000
Dec.
31
Interest
expense
24,991
Interest
payable
24,991
33,321
x
9/12
31
Depreciation
expense
57,466
Accumulated
depreciation
57,466
(d)
Books
of
Ben
Ten
2014
Apr.
1
Finance
lease
receivable
720,000
Unearned
interest
revenue
180,270
Equipment
for
lease
539,730
80,000 x 8 = 640,000; 640,000 + 80,000
Page
60
Chapter
4
–
Leases
Page
61
Chapter
4
–
Leases
Page
62
Chapter
4
–
Leases
Page
63
Chapter
4
–
Leases
Page
64
Chapter
4
–
Leases
Page
65
Chapter
4
–
Leases
(c)
2014
July
1
Cash
400,000
Accumulated
depreciation
350,000
Loss
on
sale
leaseback
50,000
Equipment
800,000
1
Rent
expense
80,000
Cash
80,000
Dec.
31
Prepaid
rent
40,000
Rent
expense
40,000
(d)
2015
July
1
Cash
350,000
Accumulated
depreciation
350,000
Deferred
loss
on
sale
leaseback
100,000
Equipment
800,000
1
Rent
expense
80,000
Cash
80,000
Dec.
31
Prepaid
rent
40,000
Rent
expense
40,000
31
Rent
expense/Loss
on
sale
leaseback
12,500
Deferred
loss
on
sale
leaseback
12,500
100,000/4
=
25,000;
25,000
x
6/12
Page
66
Chapter
4
–
Leases
Theory
MC28 D This is an operating lease; thus, there is no interest expense involved.
MC29 D Accrued rent from July 1 to December 31 (240,000 x 6/12) P120,000
MC31
B
Accumulated
rent
revenue
up
to
June
30,
2017
(1.2M
x
2)
P2,400,000
Accumulated
payments
up
to
June
30,
2017
(600,000
+
900,000)
1,500,000
Rent
receivable,
June
30,
2017
P
900,000
MC36 B Capitalized leased asset on May 1, 2015 (400,000 x 5.95) P2,380,000
Page
67
Chapter
4
–
Leases
MC37
D
Depreciation
is
based
on
the
economic
life
of
the
asset
(2,400,000
–
200,000)
/
8
years
P275,000
MC44
D
Net
investment
in
the
lease
after
1st
payment
(100,000
x
4.8)
P380,000
Interest
revenue
for
the
year
2015
(380,000x
10%
x
5/12)
P
15,833
MC46
A
Net
investment
in
the
lease
after
1st
payment
(3,520,000–
600,000)
P2,920,000
Interest
revenue
for
year
2015
(2,920,000
x
10%
x
6/12)
P146,000
MC48
D
Net
investment
in
the
lease,
January
1,
2015
P400,000
Reduction
in
net
investment
for
2015
Annual
rental,
excluding
executory
costs
P108,951
Interest
expense
(400,000
x
10%)
40,000
68,951
Net
investment
in
the
lease,
December
31,
2015
P331,049
Page
68
Chapter
4
–
Leases
MC53
A
Initial
direct
costs
increase
the
net
investment
in
lease
recorded
by
the
lessor.
The
terms
of
the
lease
already
indicated
that
the
residual
value
is
guaranteed;
hence,
it
could
not
be
taken
as
the
reason
for
the
variance.
However,
if
the
residual
value
is
unguaranteed,
then
it
could
be
considered
as
a
reason
for
the
variance.
MC54
A
This
excess
over
the
limited
hours
should
be
accrued
by
the
end
of
2016,
even
if
payment
would
be
made
at
January
1,
2017.
MC57 B Revenue on sale leaseback 1.2M/12 = 100,000; 100,000 x 6/12 P50,000
MC59
B
Excess
of
fair
value
over
carrying
value
(710,000
–
650,000)
P60,000
Excess
of
sales
price
over
fair
value
800,000
–
710,000
=
90,000;
90,000
/
12
=
7,500;
7,500
x
9/12
5,625
Gain
from
sale
leaseback
P65,625
MC60
D
If
selling
price
is
at
fair
value,
full
amount
of
gain
is
recognized
immediately
(800,000
-‐
650,000)
P150,000
MC61
B
Additional
information,
lease
term
is
12
years
out
of
total
life
of
25
years.
Deferred
loss
(650,000
–
470,000)
P180,000
Amortized
loss
in
2015
(180,000/12
=
15,000;
15,000
x
9/12
11,250
Deferred
loss,
December
31,
2015
P168,750
Page 69